Will The Outsiders Please Stand Up

We’re lucky to have Will Thorndike as an LP and advisor. Alongside founding and running Housatonic Partners he wrote an influential book that Warren Buffet put on top of his recommendations a few years ago. “The Outsiders” analyses the highest performing CEOs and identifies that extraordinary outcomes stem from superior capital allocation. We transposed the framework onto the hard science startups we invest in. What came out is a powerful summary of insights.

Capital sources:

                             
 

Source

 
 

Mainstream Idea

 
 

Contrarian Insight

 
 

Equity

 
 

The more money I raise, the more company I am.

 
 

The more equity you’ve sold, the less you own of   your company and the higher the threshold for exit success.

 
 

Revenues

 
 

I don’t have a product, so that’s not available to me yet

 
 

Partners will pay to get a chance to participate in the future cash   flows of your tech & IP: MTA’s, JDA’s, exclusivities, distribution   agreements, manufacturing agreements, preferred pricing terms, royalty share,   revenue share….

 
 

Grants

 
 

Free money, awesome!

 
 

Grants are restricted and if you hire permanent   staff against fulfilling grant obligations you’ll soon carry the cost. So   pursue grants when you would do the work anyway (see capital deployment below)

 
 

Debt

 
 

I have never heard of debt for a startup

 
 

If you have contracts with future revenues, you can borrow – but do   so only if you have a clear cash flow positive path ahead.

 

 

Areas to deploy capital:

                                       
 

Area

 
 

Mainstream Idea

 
 

Contrarian   Insight

 
 

Tech/product   development

 
 

My business is centered around my tech -> I need   to advance it to advance the company.

 
 

Often times, the technology does not need to be   advanced (significantly) to get an industrial partner on board. Getting   partners on board to ensure viability and path to market are most important   value drivers.

 
 

Runway

 
 

I need enough time to advance the product sufficiently, so that I can   raise the next round.

 
 

Getting deals done with large industrial companies takes a long time.   Give yourself ample time and don’t waste money elsewhere.

 
 

Business development

 
 

I don’t have an advanced enough product yet to sell,   so I am only talking to prospects.

 
 

Your work is to sell the future. Build and sell   prospects on the business case for the eventually complete technology.

 
 

IP

 
 

An area where you must not bootstrap and most people get that right! Quantity   is not equal to protection though. It’s important to develop a strategy that   considers the general landscape, not just your own invention.

 
 

PR & Marketing

 
 

Important to signal to investors, so I need coverage   in investor press (TechCrunch, WSJ, NYT…) and I need to be present at   investor community events.

 
 

Important complement to business development in   order to signal tech validation to industry prospects (specialty press often   beats broad press).

 
 

Swank (Success   Theatre)

 
 

Looking like success = success

 
 

Real traction with relevant customers/partners is what brings the   bacon home.

 
carsten boers